Wyckoff’s Volume Spread Analysis (VSA) is a powerful tool used to decipher the underlying forces driving market movements. Developed by Richard D. Wyckoff in the early 20th century, this method focuses on the relationship between price and volume, which he believed held the key to understanding the market’s direction. Wyckoff’s work has laid the foundation for many modern-day technical analysis approaches, offering a comprehensive framework for identifying potential turning points in the market. In this blog post, we’ll explore the foundational elements of Wyckoff’s theories, dive into Signs of Strength (SOS) and Signs of Weakness (SOW) patterns, and understand how the Effort vs. Results concept fits into this analysis. Toward the end, we’ll introduce two powerful indicators that automate these complex processes. The Wyckoff Method: Understanding Market Phases Wyckoff’s approach to market analysis goes beyond simple price and volume interpretation. He proposed that markets move in phases driven by the forces of supply and demand. The four market phases are: Accumulation: Institutions accumulate positions after a price decline (Mark Down), preparing for a future upward move. Mark-Up: As demand overtakes supply, prices rise, creating a bullish trend. Distribution: After a rally, institutions start distributing (selling) their positions, balancing supply and demand. Mark-Down: Supply exceeds demand, causing a price decline and a bearish trend. Understanding these phases allows traders to time their entries and exits in sync with the market’s momentum. Signs of Strength (SOS) and Signs of Weakness (SOW) Wyckoff identified several Signs of Strength (SOS) and Signs of Weakness (SOW) that signal potential market reversals or continuations. Here’s a list of both SOS and SOW patterns: Signs of Strength (SOS): Down Thrust (DT): A bullish pin bar or doji with ultra-high volume and a small spread. Interpretation: Signals potential accumulation and a bullish reversal. Selling Climax (SC): A large bearish candle with a long downward wick on ultra-high volume. Interpretation: Indicates that selling pressure is weakening, suggesting a potential up move. Effort Less than Result (E<R): A bearish candle with a larger spread but lower volume than the previous bar. Interpretation: Indicates that selling pressure is diminishing, suggesting a bullish move. Effort More than Result (E>R): A bearish candle with a smaller spread but higher volume. Interpretation: Suggests that despite high volume, selling is losing momentum, signaling a possible reversal upward. No Supply Bar (NS): A low-spread candle with a downward wick and lower volume than the previous two bars. Interpretation: Signals a lack of selling pressure and a potential bullish continuation. Pseudo Down Thrust (PDT): A down pin bar or bullish doji with low spread and volume lower than the previous two candles. Interpretation: Signals a continuation of the current bullish trend. Pseudo Inverse Down Thrust (PIDT): A bearish pin bar or doji with low spread and volume lower than the previous two bars. Interpretation: Continuation of the bullish trend. Inverse Down Thrust (IDT): A bearish pin bar or doji with a long upper wick on ultra-high volume. Interpretation: Suggests a bullish reversal, signaling accumulation. Failed Effort Selling Climax (FESC): A candle with a higher spread and volume than previous candles, but it fails to close low. Interpretation: This indicates strong buying interest and suggests a bullish move if the next bar confirms. Signs of Weakness (SOW): Up Thrust (UT): A bearish pin bar or doji with ultra-high volume and a small spread. Interpretation: Signals distribution and a potential bearish reversal. Buying Climax (BC): A large bullish candle with a long upward wick on ultra-high volume. Interpretation: Indicates weakening buying pressure, suggesting a potential downward move. Effort Less than Result (E<R): A bullish candle with a larger spread but lower volume than the previous bar. Interpretation: Indicates that buying pressure is weakening, suggesting a bearish move. Effort More than Result (E>R): A bullish candle with a smaller spread but higher volume. Interpretation: Suggests that despite high volume, buying is losing momentum, signaling a possible reversal downward. No Demand Bar (ND): A low-spread candle with an upward wick and lower volume than the previous two bars. Interpretation: Signals weak buying pressure and a potential bearish continuation. Pseudo Up Thrust (PUT): A small spread bearish pin bar or doji with volume lower than the previous two candles. Interpretation: Continuation of the bearish trend. Pseudo Inverse Up Thrust (PIUT): A pin bar or bullish doji with a small spread and volume lower than the previous two bars. Interpretation: Continuation of the bearish trend. Inverse Up Thrust (IUT): A bullish pin bar or doji with a long lower wick on ultra-high volume. Interpretation: Suggests a bearish reversal, indicating distribution. Failed Buying Climax (FBC): A candle with a higher spread and volume than the previous candles, followed by a bearish confirmation. Interpretation: Indicates a bearish reversal if the next bar confirms the signal. Effort vs. Results: A Crucial Component Wyckoff’s Effort vs. Results concept delves into the relationship between volume (effort) and price movement (result). Wyckoff posited those discrepancies between effort and result signal important market information: High effort with minimal result suggests that the market is encountering resistance, signaling a potential reversal. Low effort with a significant result indicates a smooth market move, suggesting the trend will continue. Traders can identify these relationships manually by comparing volume and price spreads, but automation makes the process easier and more reliable. Introducing the Wyckoff VSA and Effort vs. Results Indicators While Wyckoff’s theories provide a comprehensive framework for manual analysis, ScalperIntel’s tools offer an automated solution that simplifies this complex process. Wyckoff VSA Indicator: The Wyckoff Volume Spread Analysis Indicator automatically identifies Signs of Strength (SOS) and Signs of Weakness (SOW), plotting them directly on your chart. The indicator even includes next bar confirmation, allowing you to validate signals before acting. Effort vs. Results Indicator: The Effort vs. Results Indicator visually represents the relationship between volume and price action through stacked bars. This tool helps traders quickly identify divergences between effort and result, streamlining the decision-making process. Both indicators support automation through platforms like NinjaTrader Strategy Builder or Bloodhound, and can be integrated into Market Analyzer for monitoring multiple instruments. Ready to Enhance Your Trading? If you're looking to apply Wyckoff’s time-tested theories with the convenience of automation, the Volume Analysis, the Wyckoff VSA and Effort vs. Results Indicators for NinjaTrader 8 by ScalperIntel are essential tools. They not only streamline your analysis but also provide deeper insights into market dynamics. In the meantime, feel free to explore our Best Sellers and Latest Releases to discover the full potential of what ScalperIntel has to offer.
I am studying Wyckoff's methods again but can not find "Signs of Strength (SOS):" in his book. It is better to give your clients some ideas on how to trade and stop and exit.
Check "TradeGuider" videos on YouTube. Volume Spread Analysis is a concept created by Tom Williams, that has a foundation the Wyckoff principles. The Volume Spread Analysis course from Tom Williams (and, after he passed away, Gavin Holmes) is quite accessible.
I must be on ignore. Can somebody inform the op that I have already demonstrated that Wyckoff is just a crude form of EW?
I mean its good the op is trying to expand his knowledge from the rudimentary S&R...perhaps chart patterns, candlesticks, order blocks, cyphers, Wychoff, Stage analysis etc...I find the journey eventually will lead you to EW because these methods are all part of EW. He is still stuck in the past. He will need to learn to chart the move BEFORE it happens not AFTER.